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Differences between various types of business organisations Sole Trader

Partnership

Company

Start up

Register as self–employed

Deed of partnership drawn up

Register with Registrar of companies.

Number of shareholders, partners or members Members’ control

one

two or more

one or more

Sole

Depends on deed

Liability of shareholder, partners or members Governance

Unlimited (personal property of shareholder may be at risk)

Unlimited (personal property of shareholder may be at risk)

Decision making at shareholder level is based on number of shares held and voting powers attached to each share. Limited to investment placed into business. (corporate veil rule-of-law applies)

By owner (appointed by owner)

Shared responsibility (agreed by partners)

Board of directors and management team (elected at an AGM by the shareholders)

Supervisory organ

Not constituted

Rarely constituted

Internal Audit department may exist usually depending on memorandum and articles of association.

Investment

Mainly personal funds

Partners’ finance

Shareholders’ finance, issuing of shares.

Maximum % shareholding by any one shareholder Accounts and audit

100%

Depends on deed

100%

Profit distribution

Withdrawn by owner

No strict accounting or audit required. Records not available for public inspection.

Distributed to partners according to profit sharing

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Accounting and audit requirements (depending on legislative thresholds). Accounts open for public inspection (also in abridged format). Distributed by way of dividends to shareholders in proportion to their number of shares.

Co-operative Register with Registrar of cooperatives. Malta: Co-operatives Board Depends on country’s legislation (usually 3 or more). Malta: five or more Decision making at members level is usually based on onemember-one-vote principle.

Limited to investment placed into business. (corporate veil rule-of-law applies) Committee of management and management team (elected at an AGM by the members) Depending on country’s legislation the society may create a Two-tier system and appoint a supervisory board solely to supervise management. Mainly from owners’ finance, issuing of shares and pooling of limited personal resources. Mostly new equity originates from internal operations especially from retained patronage refunds. Depends on legislation. Malta: 40%

Accounting and audit requirements (depending on legislative thresholds). Accounts open for public inspection (also in abridged format). Distributed by way of patronage to members in proportion to the volume of business or other transactions done by them with the society. Usually limited dividends paid to shareholders in proportion to their number of shares. Statute may also prohibit distributions such as in social and/or consumer societies.


Sole Trader

Partnership

Company

Co-operative

All profits may be distributed

Usually a portion of profits before distributions is placed in a common fund (not-for distribution) called Legal Reserve e.g. 15% of profits p.a. (capped) Malta: Reserve Fund - 20% p.a. (capped) Perpetual existence. Members and their cooperative are legal and distinct entities.

Common fund

All profits may be distributed

Continuity

If owner dies or retires business may go out of existence unless sold by heirs.

Transferability of ownership

Usually whole business sold

Possibility to sell some or all shares at market value or according to share valuation. (Usually share transfers in non-public companies are highly restricted)

Winding-up

Usually business is closed and net assets (if any) are distributed to owners

Usually company is liquidated and net assets (if any) are distributed to shareholders according to % shareholding.

Partnership dissolved on death, retirement or bankruptcy.

Perpetual existence. Shareholders and their company are legal and distinct entities.

Possibility to transfer membership but usually member obtains ONLY par value of share and does not benefit from asset appreciation. (Usually share transfers are highly restricted if no open market exists). Transfer of shares between members are rare. Usually a co-operative is liquidated and the net assets (if any) are distributed on winding-up according to the principle of disinterested distribution, that is to say to another co-operative pursuing similar aims or general interest purposes. Yet country’s legislation may vary this rule.

4th November 2007 Disclaimer: We make every effort to maintain the accuracy of the information on this webpage but cannot accept responsibility for any liability for loss or damage which may occur from use of the information. All information in this webpage is being provided as a general guide only and should not be considered as a substitute for professional advice, and the original legal documents are to be consulted carefully.

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